World Gold Council: China Makes Large Gold Purchases Amid Price Corrections, ETF Holdings Reach Historic Highs

Huitong Finance Network, October 16—— Ray Jia, Research Director for China at the World Gold Council (WGC), stated that the People’s Bank of China increased its gold reserves by 23 tons last month; domestic gold ETFs saw continued capital inflows in September, closing out a strong third quarter. As gold prices declined, the demand for gold jewelry, bars, and coins increased, driven by various festivals and holidays.

Ray Jia, Research Director for China at the World Gold Council (WGC), stated that the People’s Bank of China increased its gold reserves by 23 tons last month; domestic gold ETFs saw continued capital inflows in September, closing out a strong third quarter. As gold prices declined, the demand for gold jewelry, bars, and coins increased, driven by various festivals and holidays.



In the latest China Gold Market report from the World Gold Council, Ray Jia pointed out that while gold prices fell in September, eroding some of the gains made in the third quarter, gold still managed to rise during the quarter.

“Gold prices corrected in September (Chart 1). The LBMA Gold Price PM denominated in USD and SHAUPM denominated in RMB declined by 8.5% and 5.5% respectively,” he said. “According to our Gold Return Attribution Model (GRAM), the Federal Reserve’s tightening policy pushed U.S. Treasury yields sharply higher, and coupled with a stronger USD, this exerted downward pressure on gold prices.”

“In RMB terms, gold finished Q3 up 3%, narrowing its year-to-date losses to 7%,” he added. “Escalating tensions between the US and Iran and growing inflation concerns are leading investors to expect further rate hikes by the Federal Reserve. In September, the Fed raised its policy rate by 25 basis points. In addition, much stronger-than-expected U.S. economic data drove short-term Treasury yields sharply higher, while long-term yields also rose, largely due to fiscal issues increasing term premiums. These various forces offset each other, resulting in a modest quarterly gain for gold.”

At the beginning of October, gold prices gradually stabilized, with domestic gold prices holding near 900 RMB/gram and international prices above $4,100/ounce. He stated, “Geopolitical tensions and their impact on energy prices, coupled with expectations about inflation and the Fed’s future rate hike path, remain the key factors determining the short-term direction for gold.”



However, gold ETFs were not weak in September. China’s gold ETFs saw net inflows of 11 tons for the month, marking three consecutive months of capital inflows. Ray Jia said, “Total gold ETF holdings in China reached 304 tons, a record month-end high. However, dragged down by lower gold prices, even though there was a net inflow of 11 billion RMB (~$1.6 billion), the domestic gold ETF assets under management (AUM) still declined 2% to 276 billion RMB (~$41 billion).”

In the third quarter, Chinese gold ETFs saw cumulative net inflows of $3.9 billion, with quarterly AUM growing by 13% and total holdings rising by 27 tons. “Continued decline in the domestic stock market increased demand for diversified asset allocation, supporting investment demand for gold. Falling government bond yields also lowered the opportunity cost of holding gold, while continued official gold purchase announcements by the central bank further encouraged gold ETF allocations,” he explained.

“Notably, the inflows in Q3 offset the outflows in Q2; annual net inflows to China gold ETFs are likely to hit a record high this year,” Ray Jia said. Entering early October, continued weakness in the domestic stock market prompted investors to further diversify their assets, keeping gold ETF investment enthusiasm high.



Meanwhile, in September, the domestic gold futures market cooled alongside gold prices. "The Shanghai Futures Exchange (SHFE) saw average daily gold trading volume drop 9% month-on-month to 360 tons; available data shows that the top 20 market makers’ net long positions by the end of September fell by 5 tons from the end of August, down to 149 tons,” he said. “The decline in both trading volume and net positions reflects decreased gold prices and volatility that month and a shift to more cautious market sentiment.”

Although trading activity cooled in September, total net long positions in Q3 still rose 59% compared with the previous quarter and trading volume jumped 18% year-on-year. “The main driver of these changes was the recovery in gold prices after Q2, especially in August.”



The drop in gold prices also spurred a retail demand recovery and led to a seasonal rebound in wholesale gold demand.

Ray Jia wrote: “In September, banks, jewelers, and other market participants withdrew 92 tons of gold from the Shanghai Gold Exchange (SGE), a 48% increase month-on-month. With the National Day holiday (early October) approaching, the jewelry industry routinely undergoes seasonal inventory replenishment, marking the start of the peak sales season for gold jewelry in Q4. The price pullback further boosted gold procurement. Market feedback shows that many investors saw the gold price drop as a good entry point, and gold bar sales improved. Weak performance in the domestic stock market and fewer investable alternatives pushed domestic investors to seek safe-haven assets. Public reports of continued People’s Bank of China gold purchases further reinforced this trend.”

“However, gold jewelry consumption remains below historical norms. Even with a short-term recovery, September SGE gold withdrawals were still at a relatively low historical level, down 22% year-on-year.”



In Q3, total wholesale gold demand in China fell 21% year-on-year to 234 tons, 44% below the ten-year average of 418 tons. “The main drag continues to be weak gold jewelry consumption,” he said.

The People’s Bank of China also took advantage of the window provided by falling prices to step up gold purchases in Q3, especially in September.

Ray Jia stated: “The People’s Bank of China bought 23 tons of gold in September, the largest monthly purchase since October 2023. After this addition, China’s official gold reserves reached 2,410 tons, accounting for 8.5% of total reserves. Due to a downturn in FX assets, the total reserve size dropped 2% in the month to $3.8 trillion.”

Following the September purchase, the People’s Bank of China has now increased its gold reserves for 23 consecutive months. In Q3, it bought 63 tons of gold, making it the strongest quarter since Q3 2023. “Since the start of this year, the PBOC has added 103 tons of gold, making it one of the most aggressive central bank gold buyers in the world.”



Looking ahead, Ray Jia commented: “The Mid-Autumn Festival at the end of September and the seven-day National Day Golden Week holiday in early October are both expected to boost sales. Pre-holiday gold price declines attracted buying on dips, significantly stimulating demand for gold jewelry, bars, and coins.”

“Currently, the macro environment remains supportive of gold investment. The traditional consumption peak in Q4 will bring seasonal upside for gold jewelry consumption; however, weak purchasing power and low consumer confidence may continue to constrain the tonnage of physical gold consumption,” he added.